>> tom: the white house tries to find new ways to finance america's housing industry. >> it's safe to say there's no clear consensus yet on how best to design a new system. but, this administration will side with those who want fundamental change. it is not tenable to leave in place the system we have today. >> susie: with mortgage giants fannie mae and freddie mac backing most of the nation's new mortgages, experts like bond guru bill gross say those changes need to be big. coming up, what he and others thought of today's housing conference. you're watching "nightly business report" for tuesday, august 17.

this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible by contributions to your pbs station from viewers like you.

captioning sponsored by wpbt >> tom: good evening everybody. how to fix fannie mae and freddie mac. susie, that was topic "a" today at a housing conference in washington sponsored by the obama administration. >> susie: tom, treasury secretary timothy geithner kicked things off, saying it's important for the government to continue backing home mortgages. but as for how much government support... geithner brainstormed with the nation's top housing experts, bankers, policymakers and academics. >> tom: today's meeting was a first step in figuring out how to reform the housing system. and, as stephanie dhue reports, there were plenty of suggestions. >> reporter: the federal government has used its financial muscle to backstop the housing industry. fannie mae, freddie mac and the f.h.a. now stand behind 95% of new mortgagees. but, treasury secretary timothy geither says that has to change.

>> we will not support returning fannie and freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support. >> reporter: there is little agreement how to do that. but, three main ideas came out of today's meeting. one, phasing out fannie mae and freddie mac altogether, which would leave the f.h.a. to support low-income housing. two, having the government support limited mortgage losses. and three, keep explicit government support through something like fannie and freddie. alex pollock of the american enterprise institute thinks private companies should back most home loans. >> this private secondary market should handle the loans for the middle class and upper middle class mortgages, which are the vast majority of the market. >> reporter: n.y.u. professor ingrid gould ellen says the government should limit the scope of its guarantees and make them explicit. >> the government should place limits on the types of loans

that should go into the guaranteed securities, and it might limit mortgages than can go into the securities to plain vanilla-- the safest, most easily understood. >> reporter: but, pimco's bill gross warns, reducing government's role comes with its own risks. >> we need the government balance sheet, and to suggest that the private market can come back in and take the place and do the same thing it's been doing for the last 20 to 30 years is simply impractical. it won't work. >> reporter: policymakers also heard that we're not getting our money's worth out of the billions spent subsidizing housing. michael stegman of the macarthur foundation says we need to rethink our policy goals. >> we can't rebalance national housing policies and reform mortgage finance in secondary markets without explicitly addressing the market distortions caused by government's disproportionate support of homeownership over renting.

>> reporter: after the meeting, hud secretary shaun donovan told me today is the beginning of a careful process. >> this is not a step we can take precipitously. while we all know the federal government's footprint has to be smaller in housing, we don't want for the long term more than

>> reporter: that process will take until january, when the administration is expected to lay out its reform plan. stephanie dhue, "nightly business report," washington. >> susie: here are the stories in tonight's n.b.r. newswheel: a host of deals gave investors a day of nice gains. the dow rose 103 points, the nasdaq added 27, and the s&p 500 rose 13. we'll detail those deals in tonight's "market focus." that rally encouraged buyers. trading volume rose on both the lly, word and the nasdaq. builders broke ground on more homes last month. the commerce department says housing starts rose 1.7% in july, but permits for new construction fell to their lowest level in over a year. meanwhile, the producer price index-- a measure of wholesale inflation-- matched expectations

with a 0.2% gain in july. it's the first time wholesale prices have jumped since march. >> tom: still ahead, when it comes to buying gold, the "word on the street" is "mistakes." alix steel of thestreet.com joins us with three mistakes to avoid in the gold market. >> susie: he may manage the world's largest mutual fund, but as you heard, pimco's bill gross calls a government guarantee in the housing market essential, and he has other ideas for helping homeowners that might surprise you. darren gersh spoke with gross after the conference and asked him why the private sector isn't up to the job of replacing government-backed fannie mae and freddie mac. >> americans now know that housing prices can go down, and they can go down by 10, 20, 30, and in some cases, 40 or 50%. we know they can go down. but five years ago, we thought they could only go up. so the hesitation and the

fear is embued in the american homeowner and will -- this is the assumption -- will be for the next several generations. it is the same thing to happen in the depression, when americans learned they had to save as opposed to spend and buckle down. that stayed with us for a long time. >> reporter: but does that mean that the government has to guarantee mortgages for generations to come? >> it means they have to be a much bigger influence. prior to this point the private market accounted for almost half of the mortgage o originalizations, to that era when investors thought they couldn't lose, they supported the private market to the extent of 50% of the existing mortgages. now it is just not going to happen. it is better to have a more liquid, safer, obviously regulated type of market in the housing arena. other countries do it differently, but we've

done it with fannie and freddie for so long it is hard to see a replacement in store. >> reporter: but people say this is how we got into the problem in the first place. the government guaranteed the mortgages, everybody took out too big mortgages, and we got into a nasty housing mess. isn't this a recipe for keeping this going? >> the prior model was a model that incorporated a public guarantee, implicit guarantee, on the part of the treasury. and it promoted risk taking and leverage on the part of not only executives at fannie and freddie, but stockholders who were pushing for more and more gains. so private, slick, private, public, was broken from the start, but we never knew it. eliminate the private, make it all public, regulate it, promote an appropriate amount of insurance per year to take

care of those defaults and bankruptcies so the government again never has to put in $200 billion or $300 billion like they have done over the past year and will do in successive years. this is a better model if properly regulated. >> reporter: how would you help, though, the mainstream homeowner? >> i think it can be done relatively swiftly. opponents would say illegal. and so this might be a technical, legal type of argument. but the quick way to do it would be to take existing agency mortgages that interest rates of 5% and 6%, and almost by mandate say they're now 4% loans. what the agencies can't do now because homeowners are required to reapply and to have appropriate collateral for their mortgages, so they can't

do that because the house is under water. my point basically is that this house is the same collateral at 4% as it was at 6% and it is a better piece of property because the homeowner isn't going to walk away and default. we can improve defaults and foreclosuress, and we can ultimately lift the price of homes by so doing, and help the mainstream american as opposed to the wall street special interest groups. >> the 10-year bond is a "c" student, yielding 2.5%. how long can that last? >> well, it can last as long as inflation stays beneath 1%. and that, basically, suggests a real interest rate of 2.5 minus 1%, 1.5%. that is a decent real interest rate in the historical terms. to the extent that the fed, though, is successful

in reflateing the economy, and that's the question, can they do it. bernanke and company are trying to reflate the economy with inflation at 2% and higher to provide some type of safety margin for a future recession. if they do there, then a 10-year treasury at 2% is not good. if they don't go there, and we have a deflationary episode, then it could go lower. and ask me the odds on that, i'd say i'm juggling balls like the rest of the marketplace. we don't know, but we're watching closely. >> reporter: bill gross, thank you for your time. >> you're welcome.

>> susie: tonight's value as we talked about, and the buzz word down here was potash. >> absolutely. fertilizing some gains finally for the first time in several sessions. let's take a look at tonight's "market focus." >> tom: there was >> tom: after five sessions of selling, more merger interest may have brought back some stock buyers. the biggest buyout talk came in basic materials, helping make that sector the best performing of the day. australian mining company b.h.p. billiton has offered almost $39 billion to buy canadian fertilizer maker potash. b.h.p. offers $130 per share, which potash called grossly inadequate. the potash c.e.o. told the "wall

street journal" b.h.p. has to pay "big boy prices." shares of p-o-t were in demand. this is a 90-day chart. the stock jumped well above b.h.p.'s offer to close at $143 and change. the stock did eight times its usual volume. the rally easily takes the stock to a new 52-week high. this is a three year chart. the stock's all time high was $230 per share, hit back during the commodity boom in 2008. the play does put the sector on notice again for possible deals. mosaic, agrium and c.f. industries all rallied on heavy volume. just three months ago, c.f. beat out agrium to buy a competing fertilizer maker. two other deals. one for hefty trash sacks, the other in health care. hefty maker pactiv will go private. reynolds group, maker of reynolds wrap, will pay $33.25 per share. the last time pactiv shareholders saw that kind of

price was in 2007. in health care, device maker medtronic rallied after announcing its purchase of osteotech. it makes tissue used in transplant operations. the price? $6.50 per share. leading the dow gainers today was home depot. investors giving it a boost even though its latest financial report card was mixed. earnings came in a penny better than expected, but its revenues were slightly less than what analysts were anticipating. still, customer traffic was on the increase, even if those customers were buying less- profitable repair items. shares rallied more than 3%. the company bumped up its earnings forecast. that optimism may have more to do with stock buybacks than an increase in revenues. wal-mart kept up its string of negative quarterly same-store sales. for the fifth quarter in a row, wal-mart's sales at stores open for at least a year decreased. overall, earnings were a penny over wall street estimates. results were driven by its

international growth, while its u.s. stores are lagging. margins fell victim to price cuts as wal-mart tried to entice customers to spend. wal-mart stock saw a little heavier-than-usual volume on this gain of 1% today. over the past 12 months, shares are down 1%, while the dow industrials are up 14% from a year ago. a couple of other general merchandise retailers from different ends of the spending spectrum also reported earnings. discounter t.j.x. companies added 1%, after pumping up its earnings goal for the year after beating the street in the latest quarter. saks, meantime, also beat expectations as margins improved. shares rallied 2.5%. every parent of a teenager knows how fickle their fashion tastes can be. so do investors. abercrombie & fitch tumbled almost 7% to a one-month low. earnings were better than expected, but inventories ballooned, hurting profit margins. urban outfitters, though, rallied 5% after record quarterly sales and earnings. it increased margins, thanks to fewer markdowns. and that's tonight's "market focus."

>> tom: over the past decade, the s&p 500 has lost about 25%. over that same decade, gold has skyrocketed more than 300%. but not all gold investments glitter. tonight's "word on the street"? mistakes. alix steel is a reporter at thestreet.com. >> thank you, good to be here. >> tom: so so lots of mistakes. for gold investing, the first mistake is paying

too much for gold boullion. what do folks need to be aware of here? >> number one rule here, don't get ripped off. a typical premium for one ounce gold coin here is 5% to 10%. the reason you want to know that is when you get into rare coins, 1/10, you're looking at 35% to 75%. an investor needs to know how much you're going to pay for gold so you can recoup your investment and start making a profit. >> tom: a big difference what you're paying for the gold boullion and what the market tells you it is worth. mistake number two, buying bad gold stocks. how do you choose which ones are the right ones to own? >> there are two tiers of stocks. the producers and the explorers. the producers have a lot of gold in the ground. explorers want to find gold, but they have no money. it is kind of like picking a lottery ticket. it does happen, but it is rare. the rule of thumb, you

want to look for good companies. companies that mine in geopolitically safe areas, and ones that are unhedged. it means that a company isn't stiv fend and have to sell gold at a certain price. they're capable of taking the gold and use it to their advantage. >> tom: alix, there are lots of different sizes from regular to multi-nationals. how do you choose between those? >> great point. you want to pick between 8 and 12. eight to 12 is a really good risk. you can take on some risk and take on some safety as well. >> tom: mistake number three, buying exchange-traeed funds for the wrong reasons. what are the wrong reasons? >> i think a lot of investorinvestors gold e.t.f.s because they want to own gold.

news flash: you don't. you own a paper reputation of gold. and the funds buy the gold. they buy the boullion and the gold. the fund then tracks the spot price of gold, but it is not like owning physical gold in your hand. and a common misconception is where you can redeem your gold shares for the boullion. that is pretty tricky. i was talking to the u.s. securities that issue shares for the smallest gold fund, and you can redeem shares, but in 50,000 share lots, which is 5,000 ounces and $16 million. i don't know any investor that has that kind of cash. >> tom: any disclosures, alix? >> i don't any gold stocks, but i do own gold jewelry. >> tom: you can read alix's article on the treat.com . >> susie: here's what we're watching for tomorrow: weekly crude oil and gasoline

inventories. it's also a big day for retail earnings: b.j.'s wholesale, chico's, gymboree and hot topic are scheduled to report. target reports earnings tomorrow as well. we'll look at whether its billion-dollar store remodeling hit the mark as we visit a target before, and after, the facelift. >> susie: almost a quarter of a million general motors crossover vehicles are under recall tonight due to seat belt problems. the second-row seat belt buckles could be damaged and not latch properly, but appear to be fine. it affects 2009 and 2010 chevy traverse, buick enclave, g.m.c. acadia and saturn outlooks. g.m. says the bulk of the recalled crossover vehicles are in the u.s., but some were sold in other countries, including mexico and canada. >> tom: meanwhile, it looks like u.s. automakers are gaining ground with their buyers. a new survey shows ford's lincoln mercury and g.m.'s buick now top the list for satisfied customers. that survey, done by the university of michigan, also

shows japanese and korean brands falling out of favor with their customers. >> susie: as we mentioned, government support of fannie mae and freddie mac has added nearly

$150 billion to the national debt. with that debt now topping $13 trillion, there's great debate about cutting that number down. so tonight's commentator is challenging you to balance the budget. she's maya macguineas, president of the committee for a responsible federal budget. >> last year, the peterson-pew commission on budget reform-- of which i am a member-- recommended that the country enact a budget plan to bring the federal debt down to 60% of g.d.p. by 2018-- the purpose being to stop the dangerous debt climb we are currently on. but what exactly would that entail? the numbers are daunting. assuming we make the bulk of the tax cuts permanent, we'd have to save roughly $4 trillion between now and then. o.k.-- so how to do it? since there is no one right answer-- nor an abundance of solutions from policymakers-- we decided to try to help things along by producing the... ta da, the stabilize the debt simulator! oh yes, now, from the comfort of your own couch, you can try to

fix the national debt problem. want to cut back spending on the wars? ok, you can save about $740 billion by 2018. scale back the tax cuts? another $500 billion. raise the retirement age in social security-- a good idea? and more than $100 billion in savings, which only get larger over time. energy taxes? over $300 billion more in savings. so far, over 100,000 people have tried their hand at reducing the debt. its not easy-- but it is doable. i have tried to convince my six- year-old son it is more fun to play than super mario brothers, with not much success, but if you think trying your hand at out-budget-making the budget- makers sounds fun, here's your chance. somebody is going to have to think about all the tough choices confronting us-- and if it's not congress, it may as well be you. i'm maya macguineas. >> susie: that's "nightly business report" for tuesday, august 17. i'm susie gharib. good night everyone, and goodnight to you too tom. >> tom: good night susie. i'm tom hudson. good night everybody. we'll see all of you again tomorrow night.

"nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you.

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